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v t r(f I._,., 11 \-\-es l,\.St• · \ 'I ('.>--v-.l ()·d::~~-,.. \:·:'; f ~c:-~ ; 'CS, " NOMINATION OF NANCY H. TEETERS BEFORE THE COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS UNITED STATES SENATE NINETY-FIFTH CONGRESS SECOND SESSION ON THE NOMINATION OF NANCY H. TEETERS TO BE A MEMBER OF THE BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM SEPTEMBER 11, 1978 Printed for the use of the Colnml.ttee on Banking, Housing, and Urban Affairs U.S. GOVERNMENT PRINTING OFFICE 33-679 0 WABBINGTON : 1978 Digitized by Google- COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS WILLIAM PROXMIRE, Wisconsin, Ollairman JOHN SPARKMAN, Alabama EDWARD W. BROOKE, Massachusetts HARRISON A. WILLIAMS, JR., New Jersey JOHN TOWER, Texas THOMAS J. McINTYRE, New Hampshire JAKE GARN, utah ALAN CRANSTON, California H. JOHN HEINZ III, Pennsylvania ADLAI E. STEVENSON, Illinois RICHARD 0. LUGAR, Indiana ROBERT !IIORGAN, North Carolina HARRISON SCHMITT, New Mexico DONALD W. RIEGLE, JR., Michigan PAULS. SARBANES, Maryland KENNETH A. MCLEAN, Stall Director s. JEREMIAH BUCKLEY, Minorit11 Sta!J Director STEVEN M. ROBERTS, Chief Economist JOHN T. COLLINS, Special Counsel to the Minorit11 (II) Digitized by Google CONTENTS Opening statement of Senator Proxmire _______________________________ _ Statement of Senator Sparkman ______________________________________ _ Statement of Senator Bayh ___________________________________________ _ Statement of Senator Sarbanes _______________________________________ _ Article from the Wall Street JournaL _________________________________ _ Statement for completion by Presidential nominee _____________________ _ Honors and awards ______________________________________________ _ Publications _______________ ___________________ __________________ _ Services--------------------------------------------------------Qualiflca tions _____________________________________________________ _ Mrs. Nancy Teeters answers to additional questions submitted by Senator Proxmire ____________________________ _ (III) Digitized by Google Page 1 2 2 6 11 17 23 24 25 26 29 Digitized by Google NOMINATION OF NANCY H. TEETERS MONDAY, SEPTEMBER 11, 1978 U.S. SENATE, COMMITTEE ON BANKING, Housum, AND U RB..\N AFFAIRS, W(J,/Jhington, D.O. The committee met at 10 :05 a.m. in room 5302, Dirksen Senate Office Building, Senator William Proxmire, chairman of the committee, presiding. Present: Senators Proxmire, Sparkman, and Sarbanes. Also present: Senator Birch Bayh. The CHAIRMAN. The committee will come to order. We are honored this morning to have as our witness a nominee for the Federal Reserve Board, a distinguished nominee. Mrs. Teeters, will you stand and raise your right hand i Do you swear the testimony you are about to give will be the truth, the whole truth, and nothing but the truth~ Mrs. TEETERS. I do. The CHAIRMAN. Be seated. OPENING STATEMENT OF CHAIRMAN PROXMIRE The CHAIRl\L\X. As you know, this is not only a highly prestigious hut a very powerful and vital position on the Federal Reserve Board. I have been concerned for some time about the fact that Presidents have not appointed, in my judgment, people who arc qualified, who really understood monetary policy, had a track record in monetary policy, had experience in monetary policy, understood the economy, had a basis on which we could judge their record. There's no question that you have a remarkable background as an economist, that your background in the academic areas is very clear nnd very impressive. You also have background in workin1r with the Government, including the Federal Reserve Board, which is most encouraging. You spent several years there in positions of considerable authority and responsibility and discharged those positions. Also, I'm delighted to say as a Senator, you have worked for the Congress of the United States at some length and there again yon distinguished yourself by your knowledge of economic policy. We have a number of questions for you on economic policy. We are looking forward to this hearing and I want to commend President Carter on appointing a very distinguished economist to the Federal Reserve Board. Nobody is perfect, not even Dr. Teeters. You don't have a banking or business background, but you do have a very strong background in economics and government and monetary policy and that's the most pertinent of all. Mrs. TEETERS. Thank you. The CHAIRMAN. Senator Sparkman. (1) Digitized by Google 2 STATEMENT OF JOHN SPARKMAN, U.S. SENATOR FROM THE STATE OF ALABAMA Senator SPARKMAN. Mr. Chairman, I listened to what you had to say. I haven't had an opportunitv to read all of this statement we have before us, but I certainly agree that what I've seen does show that Mrs. Teeters had a wonderful record of performance. The CHAmMAN. Now we are happy to see our distinguished colleague from Indiana here this morning and I notice that you did come from Indiana. I challenged Birch on that. I didn't understand that you were an Indiana native, but I see you are, that you went to Horace Mann Elementary School in Marion, Ind., and Martin Boots Junior High in Marion, and I can see why Marion and Senator Bayh are so proud of your background. You also went to Marion High School and graduated from Marion, so you are a Hoosier. Mrs. TEETERS. That's right. The CHAIRMAN. I'll be happy to have the distinguished senior Hoosier introduce you, Senator Bayh. STATEMENT OF BIRCH BAYH, U.S. SENATOR FROM THE STATE OF INDIANA Senator BAYH. Thank you, Mr. Chairman. I trust that the record will not show the surprised expression on the chairman's face. I don't know whether that was because he was comparing the Indiana origin with the significant background of academic and governmental expertise. I'm sure that's not the case. l\Ir. Chairman, you have important matters to discuss with the new nominee, but I did want to have a chance to say how proud I am of the fact that the President has chosen Dr. Nancy Teeters to serve in this critical role. Both you and I have been critical of the past performance of certain members of the Board, not as individuals but because of the dramatic impact that the activities of those individuals have on the entire economic well-being of the country. I think we have in Dr. Teeters an individual with a rare combination of experiences-with the Board, with the Office of Management and Budget, in the private sector with Brookings ,~here she coauthored the series of studies which were exceptional. And as you pointed out quite accurately, the outstanding job she's done in the House. I think t_hat we in Congress are really making history with the way we are trymg to make our budgetary process work. It's our loss and the country's gain to lose someone like Dr. Teeters from the congressional budgetary process, but indeed the country needs someone with her talent on the Federal Reserve Board. I might just add one other thought that I find particularly rewarding. As you know, I have been rather actively involved in a number of different issues as far as the needs of women of our country and I think it is a particularly impressive feature of the President's choice that he chose Dr. Teeters as the first woman in the 65-year history of the Federal Reserve Board. Normally that's not the kind of thing that would bear.even mentioning, but the fact that there's never been a woman there before I think it should be mentioned. I think she's a good example of the fact that there are a number of women in this country who have the credentials to do the job; they just happen to be women as well; and I think the President has chosen a good person, a good, qualiDigitized by Google 3 fled person. She can serve as a shining example to this administration and others that there are other people out there with her qualifications to be used in other places as we 11. So !•appreciate the privilege of ,t he honor of joining in the welcoming of Dr. Teeters to the committee. The CHAIRMAN. Thank you, Senator Bayh, and I'm also delighted that you mentioned the fine association that Dr. Teeters had with Brookings and the great work she did there. It was most impressive. As you say, the fact is that this is the first woman who's been appointed to the Federal Reserve Board and it's about time. The Federal Reserve Board has been in existence since 1913. That's 65 years, and it's a disgrace really that we haven't had a woman appointed to the Board, particularly when there are women who are qualified. Now we have a brilliantly qualified woman so it's doubly welcomed. Thank you very much. Senator SPARKl\IAX. Mr. Chairman, before Dr. Teeters leaves, I would like to saf that I now have had an opportunity to look through this paper that has ·been presented to us. I think she's had a wonderful record, just almost unbelievable in her accomplishments, and I want to congratulate her and join you in congratulating the President on designating her to this office of high responsibility. The CHAIRMAN. Thank you, Senator Sparkman. Mrs. Teeters, do you or any of your immediate family have any holdings that would constitute a potential conflict of interest in your new position? Mrs. TEETERS. In the children's trust funds there are bonds issued by the Chemical Bank of New York which we have agreed to sell. The CHAIRMAN. That's the only holding that you have that could be a conflict of interest? Mrs. TEETERS. There's also American Express stock in one trust fund that we also agreed to sell. Those are the only conflicts of interest that Ilmowof. The CHAIRMAN. You have no other conflict of interest? Mrs. TEETERS. Not according to the counsel of the Board. No. there's one other, a small one. '\Ve own fonr shares of the Newfound Corp .• a land operation in the Virgin Islands. which we have also agreed to sell. The CHAIRMAN. Why would that constitute a conflict of interest in the Federal Reserve Board, a land holding in the Virgin Islands? It seems to be remote from anything you could possibly influence. Mrs. TEETERS. I have been asked to sell the stock because it's considered a speculative stock. The CHAIRMAN. I see. Well, you're bending over backward. which is always welcome. Do you agree to appear before appropriate congressional committees to testify when requested to do so? Mrs. TEETERS. Yes. sir. The CHAIRMAN. Now there were a series of interesting editorials and 80 forth in the '\Vall Street Journal this morning that relate to your new iob, and I'd like to a8k you about some of them becau8e they are rig-ht on target with what yon will have to <leal with. In the first place. the economy as a whole and the problem of dealing with inflation and unemployment so puzzles everybody and we don't seem to have any good answers. Daniel Brill, Assistant Secre- Digitized by Google 4 tary of Treasury for Economic Policy-and I'm sure you're familiar with Mr. Brill-said the following, and I'd like your comment on it: The analytical frameworks have not kept pace with the changing economic environment, particularly in light of·the rapid social and structural changes that have occurred in recent years. It is certainly a fact that some of our generally accepted propositions in economics have been placed on the injured reserve list, whether permanently or temporarily remains to be seen. This is not making the economic policy task any easier. It is difficult enough to chart a policy course without finding that some of the road signs are pointing in unexpected directions. l\Ir. Brill points out, for instance, that the basic relationship betwe.en real economic growth and unemployment has gone awry in the past year or so, with the jobless rate falling sharply, even though the economy has grown only a bit faster than its long-term potential. This development seems to have invalidated "Okun's law"-which I'm sure you're familiar with-that says a growth rate of about 4 percent is required to keep unemployment from rising and an additional percentage point of growth is needed to reduce the jobless rate by onethird of a point. What's your reaction to this very puzzling development that we have, plus the very difficult problem we have of coping with inflation when we still have a high level of unemployment j Mrs. TEETERS. Frankly, Senator, I'm willing to wait a couple years to take a look at the statistics. Frequently we have an inconsistent set of relationships which tend to disappear after all the information is fully available. Okun's law has over time proven to be fairly a.ccurate and looking back just in the field of the economy, I suspect that we are going to find it was growing faster than we thought it was at the time of the preliminary estimates of growth. I do find it both heartening and puzzling that we have had such a rapid increase in employment over the past 6 to 9 months. Of course, there is the other side, that at least at the present time, the statistics are reflect.ing very low estimates of productivity. So I have a feeling that the economy probably is progressing at a faster rate than the official statistics of growth are currently showing, and I think that's a long-range problem in information gathering. However, I think Dan Brill is right that we have a number of-The CHAIRl\lAN. You say you think that the economy is growing at a faster rate than the statistics show? Mrs. TEETERS. Yes. The CHAIRMAN. How much faster? Mrs. TEETERS. I would guess about half a percentage point. The CHAIRMAN. How can that be? Why should the statistics be wrong? Mrs. TEETERS. They are all "preliminary" statistics at the present time. Final numbers are not available until 3 years after the actual event; with seasonal ad.instment and other factors, a very different picture of the economy will often emerge. The CHAIRl\IAN. EvE'n with the half a percent greater increase in the last vear, that wouldn't validate Oknn's law, would it? Mrs. TEETERS. I think Mr. Brill was saying currently reported statistics invalidates Oknn's law. The CHAIRllIAN. Yes; he says it's invalidated under present circumstances. You explained that by saying the statistics underestimate the Digitized by Google 5 growth rate, but the growth rate of one-half percent more would not give you a sufficient record so that you could justify the increase in the employment based on Okun's law. Mrs. TEETERS. That's right. It doesn't validate Okun's law, nor doe::; it throw it completely out. I think there has been extremely rapid growth in employment and, don't forget, we also moved theThe CHAIRMAN. How about the fact that we have such a diminish• ing- rate of productivity 1 Mrs. TEETERS. Well, I think all of these are acting together. If the GNP statistics are wrong and there has been this rapid increase in employment, then there will be a low productivity number. On the other hand, if there is a higher GNP number and the employment numbers are not revised, the result will be more productivity·than had been expected. The CHAIBMAN. You sound as if-and I'm sure with your background it's very impressive-you sound less certain about the validity of our statistics than any witness I have heard in some time. Mrs. TEETERS. I think it takes a great deal of constant monitoring of the statistics, and frankly I think we could do a great deal to improve them. The CHAIRl\IAN. Do you think productivity statistics, the growth statistics, and the employment statistics, could vary substantially? Mrs. TEETERS. They are linked together, with one being a result of the other. The productivity comes by taking real GNP and dividing it by the number of people employed. So if one of those two numbers is off, then .productivity is going to be off. A good example of the statistical problem occurred last year in 1977. The unemployment rate in 1977 fluctuated between 6.9 anq 7.1 percent. It sort of bounced back and forth. ,vhen a seasonal adJustnwnt was made in December, we found there was a constantly declining unemployment rate during the paBt year; and a different view of the 1977 economy emerged. I think Mr. Brill is right that many of our theories don't fit any more and I would say one of the biggest <'hanp:es, which is hard for the American public to comprehend on an individual basis. is the exposure that the country now has to the fluctuations in the international world. During the three decades after World ,var II, we didn't have to pay attention to the rest of the world with regard to exchange rate; now we do; international relations have a lot to do with the domestic economy now. The CHAIRMAN. Let me ask yon about the inflation problem. Inflation does seem to be the No. 1 economic problem. The forecast by the Gove>rnment forecasters has been way off. They have been much too optimistic, particularly this year. It seems to be getting worse, regardless of the steps being taken by the Federal Reserve, the administration, or the Congress. Many people look to the Federal Reserve Board to control inflation by restraining money growth and raising interest rates. Interest rates are now at a level that will have a punishing effect on housing and that will have> a retarding e>ffect on the growth of the rest of the economy. So, given the current economic conditions, what can and should the Federal Reserve Board do to dampen inflation without bringing the economy to a halt or slowing down the growth to such an extent that unemployment increases? 33-579 0 - 78 - 2 Digitized by Google ~ 6 Mrs. TEETERS. Well, the Federa1 Reserve has taken some moves in recent weeks which I think should help. It has removed the reserve requirements on foreign lending to encourage domestic borrowers to borrow in the Eurodollar market. This should help the pressure on credit domestic markets and absorb Enrodol1ars from the international market. That move is aimed at trying to move borrowing abroad rather than at home. The Fed has raised the discount rate, as you are well aware, and apparently has raised their target on the Federal funds rate. Theoretical1y, this shou]d reduce the amonnt of borrowing. The CHAIRMAX. The rediscount and the Federal funds rate are getting pretty high and the mortgage rate is about as close to 10 percent as you can get without getting to it. Aren't we now in a zone where almost any increase from now on is likely to slow construction, slow housing, slow the economy i Mrs. TEETERS. I would certainly say that the range that's available for Federal Reserve action is very narrow because the rates are now so high. I would be worried about higher rates at the present time. Fortunately, the housing market seems to be holding up relatively well with the introduction of the new T-bill and funds continue to flow into the saving and loan associations. As a result, there's no sharp indication of disintermediation. The CHAIRMAN. ·what you're telling me is that the Federal Reserve, which many people feel is our best rPliance or our one fairly consistent reliance on fighting inflation, has very little it can do. You say it can do something but the ranges which it can increase interest rates to retard inflationary pressure is now pretty limited. Mrs. TEETERS. It's certain1y more limited than it was at the beginning of the year. The C1IAIRlL\N. It's so limited that the effect would be pretty marginal. Inflation continues to be, as I said, the No. 1 economic problem in the view of most people. lfrs. TEETERS. I don:t think, Senator, that the higher-interest rates have been in effect long enough to know what the impact is going to he. The FPd has moved owr the vcar to raise the interest rates, which are now relatively high. It is still too soon to get any reading on the impact of those interest rates on the economy. Certainly to date-The CnAIRlIAN. You say we could have a fairly substantial increase in interest rates possibly without adverse effect on economic activity? Mrs. TEETERS. No, sir; I did not say that. I'm saving that at the beginning of the year when the rates were a great deal lower, the Fed had a much larger margin in which they could operate. Part of that margin has been taken up, because we are now at a point where interest rates are very high. ·we still have not had a long enough period of time to assess the impact of the new higher rates on the rate of economic growth. The CHAIRMAN. I will be back with more questions. Senator Sparkman. Senator SPARKMAN. I belien~ I'll yield since Senator Sarbanes is here. STATEMENT OF SENATOR SARBANES Senator SARBANES. Mr. Chairman, I have no questions. I really came this morning to state to the committee and place on the public Digitized by Google 7 record that I think this is an absolutely superb appointment. I was on Walter Heller's staff at the Council of Economic Advisers when Nancy Teeters came over from the Federal Reserve, where she was a distinguished member of the Fed's staff to be a staff member of the Council of Economic Advisers. I can attest personally to the important role which she played at the Council and the extraordinary quality of her work. She then went back to the Fed and from there to the Office of Management and Budget and then to the Brookings ilnstitution and the Library of Congress Congressional Research Service. For the last few years she's been one of a handful of top staff members of the House Budget Committee. She is superbly qualified to be a member of the Federal Reserve Board. I have just come this morning to be in a position at the right time to move her favorable recommendation by the committee. Having said that, I will yield the rest of my time to the chairman so he can continue his interrogation. The CHAIRMAN. You obviously have some fast friends on the committee and it's always a good thing to have. As you know, the Federal Reserve in their discussion of monetary policy with the Congress announce target ranges for the monetary aggregates, M1, M2 and M3 • We worked that out with Chairman Burns a couple years ago and there are several aspects of that that bother me very much. One is the breadth of the ranges. When we first contemplated this I very much wanted a specific figure. I pointed to the German Bundesbank which this year had an 8-percent target for the rate of increase in the money supply in M1 and I wanted us to have something like one figure so that we could make an evaluation of it. The Federal Reserve has come in with ranges so 'broad that they are very nearly meaningless. They go all the way from 4 percent to 6½ now. They are even having trouble with that. There's a minority vote to push it up higher than that. In spite of that range, the Federal Reserve seems to have trouble staying within that range. They have gone above it rather consistently. The M1 is 4 to 6½ percent, yet there is almost no chance that 4-percent growth could be achieved this year. Similarly, there is little chance that M2 growth of 6 percent can or should be reached. The target ranges if they are to be useful should be meaningful. I understand there's a psychological problem here if they should abandon the 4 percent and move it from 6 to 9 percent or something of that kind, which would be more realistic; then the feeling would be that the Federal Reserve is throwing in the sponge in the fight against inflation. Do you think the money growth ranges the Fed announced are useful and meaningful representations of Fed monetary policy i Mrs. TEETERS. Senator Proxmire, I'm not a monetarist either philosophically or by training. I think that the money ranges have been helpful, but I think that they are only one of a variety of indicators that anyone interested in monetary policy and the progress of the economy should look at. I have some sympathy with the Fed's range. In fact, I'm almost envious of them-from my role as a forecaster of the House. If I would have been able to give the range of growth in a specific number-- Digitized by Google 8 The CHAIRMAN. That's exactly the point. That's what I'm getting at. If nothing else, you say give us a range so the deficit will be anything from $40 to $60 billion, which is equivalent to this thing, or the growth in the economy would be anything from 2 percent to 6 percent. You know, when you get something like that, you don't have anything to work with, and I realize if they give a specific figure they are not going to be right; they are going to be above it or below it in most cases; but at least we have some notion of what they are aiming at. Now they just come in with a broad range that means very little. Mrs. TEETERS. As a matter of fact, the estimates on the deficits for the past 4 years have been remarkably wrong because of the shortfall problems with expenditures that we have been coping with. The CHAIRMAN. You have had lesser deficit than you estimated. Mrs. TEETERS. That's absolutely right, by $10 to $15 billion from time to time. Any time you give a point estimate for the future, you know automatically it's going to be wrong; and whether you openly say you have a range or whether you implicitly have it, it's a range around which you think that your estimate is probably the midpoint of that range. If anybody takes a point estimate as being what's going to happen in the world over the future, I would say that they arc not aware of reality. I know the ranges are large and, realistically, if you're going to talk about where you think the economy is going to go, those numbers should be given ranges as well. However, the size of the range possibly could be narrower. Given the publicity that the press gives to aberrations of M 1 from a certain range of growth, there's too much attention focused, I think. on the rate of growth in M 1 , in particular, in very f'hort periods of time. The CHAIRMAN. ·well, you're not a monetarist. The monetarists say that's the whole ballgame. They are very distinguished people, including Nobel Prize winner Friedman and others, who say that's the ballgame. How do you answer the argument that after all prices are a relationship between the quantity of money and the quantity of goods? If you increase the quantity of money, the value of that money is likely to decline. If the quantity of money goes down in relationship to the availability of goods, then the price level would tend to go down too. Mrs. TEETERS. Well, I think their track record has not been good over the years, and another variable even in their own equation is the rate of turnover in money. The CHAIRMAN. Isn't 'it a matter of lag, though? Friedman argues if you do it over a period of time that it would work out. Sometimes the monetarists' view can be pretty cntel, and the effect on the economy can be pretty devastating. If, for example, we followed what Friedman seems to want to do, let the money supply increase, say, at a 3-pereent or 31/2-percent rate regardless. would you agree or would you disagree that you might get price stability but at a terrible price? That is a big increase in unemployment then.. Mrs. TEETERS. I think the price may be too high. It seems to me that the major goals of someone working in the policy area have to be aimed at what you want in the economy. Certainly excessive money can lead to inflation; on the other hand, too little money can cut down on the rate of real growth and lead to more unemployment. So you're con- Digitized by Google 9 stantly balancing one off against the other. I don't think we have had rates of growth in the money supply. with maybe a few exceptional periods, in which the money supply has been the major cause of the inflation. The inflation has been coming rather steadily out of other areas and-The CHAIRMAN. Would you argue that the inflation that we hav~ had in the last 2, 3, or 4 years has not been in any significant part a function of the increase in the supply of money 1 Mrs. TEETERS. I think it was coming from sources such as food prices, fuel prices, decreases in the Yalue of the dollar~ and increases in wages. The CHAIRMAN. But what Friedman says seems to be true, that if the price of energy would go up, regardless of what you do with monetary policy, the price of other commodities would go down because you depress the economy, if you held down the rate of increase in the supply of money. In other words. there would be a tradeoff. There would be a drop in the price of other things. People wouldn't be able to afford to buy cars and other things, and that would compensate overall for what would happen to the increase in the price of energy. Mrs. TEETERS. But there would also be a very large increase in the rate of unemployment. The CHAIRMAN. Yes. Mrs. 'rEETI:RS. If you force the oil prices to be absorbed within a given framework, it means there are other goods that are not going to be purchased and lots of jobs would be lost. I happen to think that unempl<>yment and employment are important goals in our society. The CHAIRMAN. I agree with that wholeheartedly, but I'm saying that doesn't go to the integrity of the monetarists' argument which is that the heart of it is the relationship between the increase in the money supply and the price level. If you follow their policy. thev will get price stability, but you would say the cost of that price stability is so great that you wouldn't want to pay it 1 Mrs. TEETERS. I think the cost would be extraordinarily expensive. I am sure that there are other factors operating in the inflation situation which probably would escalate prices even if you followed a strict monetarist approach to the world. OPEC is not under our control. The food shortages have escalated food µrices very ranidly. We have an economy which is heavily organized as far as union wages are concerned, and we have industries which have the ability to set their own prices. So a simple approach of money alone does not tak~ into account the complex world that we live in. The CHAIRMAN. Then if we are going to go along with the recognition that we need a substantiial increase in the money supply, M1 has to go up at a rate of 7 or s·percent, are we then recognizing that we _will have to have a rather steady increase in price level over the next 20 years¥ Mrs. TEETF..RS. I think it is very important how the reported effort of the White House to keep the most recent increases in prices out of industry wa~ settlements is resolved. We have had a situation where one sector of the economy has gained at the expense of other sectors. In the early 1970's, it was the agricultural sector. People want to maintnin their real income, and we are fighting back and forth to cut a pie Digitized by Google 10 which is not growing as fast in real terms as people want it to. Each one is trying to maintain their relative advantage compared to other people. )Ve don't have a system or a mechanism which says basically that all of us have to take a smaller growth in our real income, and somehow we have to find a way of dividing up thif pie without competing segments of our economy trying constantly to recoup. The CHAIRMAN. I agree with that wholeheartedly, but wage increases have been translated into price increases. The question 1s not if that's a fact, but what you are going to do about it. It's perfectly understandable on the part of labor that they want a cost-of-living adjustment, and they are getting it. In more and more contracts it's automatic. The only way you can break that probably, to be blunt about it----and I wouldn't want to do it--but isn't it true that the only way you can break that is by a tight monetary policy, among other things, that pushes us into something of a recession, increased unemployment, weakens the ability of labor to get what they would like to get and therefore tends to correct our inflation by creating a situation where wages don't go up as fast? Mrs. TEETERS. I'm not aware that the recent recession in 1974 and 1975 really broke the wage negotiation power of the unions, nor did it prevent the large companies from going forward with increased prices. The steel industry had a rapid increase in both prices and wages over this period of time. The CHAmMAN. Did they repeal the law of supply and demand? They had labor available there looking for work, anct yet wages you say went up just as fast-Mrs. TEETERS. I think the people who get hit worst by recession are not the ones protected by the unions. When you come to the laws of supply and demand, you have to take into account the productive capacity. The CnAmMAN. Of course, you're absolutely right, but 80 percent of the people in this country don't belong to unions, but wages would tend to fluctuate. . Mrs. TEETERS. There was no downward fluctuation in wages in the past 4 or 5 years. The last downward movement in wages was in the Depression period in the 1930's. The CHAraMAN. Did they go up as fast in a period of recession? ~frs. TEETF.-RS. They probably went up somewhat slower but not a great deal slower. Remember that the 1975 recession occurred after the enormous double-digit inflation of 1974-75. Given the 11-percent increase in the CPI, I think there was a great deal of fear that the unions would ask for increased wages of 13 percent. In reality, wage increases avemged about 8 percent. The CHAmMAN. What is your conclusion as to the level of inflation we are likely to have to face? Mrs. TEETERS. I think we have built in a lot of inflation. It's getting into wage contracts. I think the way to reduce it is to slowly push down on the level of the rate of increase in wages and prices from what it was previously. The CHAffiMAN. Can you just do that when you have what we all hope to have, a diminishing level of unemployment or holding unemployment, say, at 5½ or 6 percent moving down to 5~ We all would like, including the President and the overwhelming majority of Congress, to reduce unemployment. We realize it's too high. Digitized by Google 11 Mrs. TEETERS. I agree, and I also do not think the inflation is coming from shortages of labor or capital. So it seems to me you could still move to absorb the excess industrial capacity and lower the unemplo1,ment rate without that being a source of increased inflation. We still have some margin on the eroduct side and we certainly have a margin on the labor side. There will come a point at which we do begin to have a shortage of labor and reach a high level of capacity utilization; then you could'expect inflation in that area. I think we are not in that range at the present time. The CHAIRMAN. We have had this gentle but determined effort on the part of the President and on the part of the people around him to try to persuade labor to do this. What is there now that can persuade them to do iH The Wall Street Journal-and I quote it again-says this: Joumal reporters Richard Levine and Urhan Lehner wrote in this paper Friday about ideas being cooked up in the White House for a second phase of the battle against inflation. Announcement of a plan is possible in a matter of weeks. Under this plan, the second phase would consist of voluntary wage and price guidelines, backed by limited sanctions. Wages, for example, would be allowed to rise no faster than the consumer price index, evidently meaning no one gets a raise at all but must pay higher taxes as inflation Jacks him up through the progressive income tax schedule. Price guidelines would vary from industry to industry, depending on bow fast prices for particular products have been rising in the past. All of this would be enforced through various slings and arrow~racking down on regulated industries, yanking federal contracts from wayward employers, ending special import protections and so on. Exceptions to the general rules could be won by properly courting the appropriate federal bureaucrat. Now that's the Wall Street Journal philosophy. Nevertheless, there is a certain kernel of reality there. Are you advocating that they move to this kind of semicontrolled situation where vou use various Federal sanctions-contracts and so forth-to crack down on employers who raise their wages or who increase prices~ Mrs. TEETERS. Senator, I have not seen the plan. However, I. along with many other people, am deeply disappointed that there has not been voluntary compliance with the lltlidelines set up by the President. The CHAIRMAN. So where do we go~ Mrs. TEETERS. I don't know where we f!O. There's a book titled "Exhortation and Controls" which is a history of wage and price controls in this country since the beginning of World War II. It's a fascinating book to read. It's also a very discouraging book to read, because we have tried so many different things, so many different times, to control the rate of inflation. As I said, next year we have major wage nef!otiations coming up. If we could. in some wav, convince the nei?otiators that thev have a maior role to plav in reducing the rate of inflation in this country, we would a11 be much better off. However. we don't have a carrot or a stick. Under present Jaw, we don't have any way to brinf! this cooperation about. The CHAIRMAX. Let me ask vou about two remedies that. have been proposed. The, second one I'm 'going to ask about is the big one that many people think is the answer. The first is the more subtle one that many economists seem to applaud. That's TIP (tax-hasecl incomes policy). '\Ve have had hearings before this committee on it. incentives in Digitized by Google ..... 12 the tax law to persuade unions to hold down wage demands and persuade employers to hold down settlements and also price increases. What do you'think of those 1 Mrs. TEETERS. Well, my initial reaction to TIP is that it would be almost as hard to administer as wage and price controls. It means that you really have to get back into the questions of what is productivity, how to define jobs, and what is a wage increase. The CHAIRMAN. Have you discusssd this with Arthur Okun@ Mrs. TEETERS. Oh, yes, frequently. The CHAIRMAN. And Henry Wallich i Mrs. TEETERS. Yes; as you probably know, Brookings had a conference on TIP last fall. I think that the major reservation is the administrath·e problem, and it is large. As time goes on, TIP becomes more attractive, particularly if you could somehow limit it with price restrictions to the large unions and to the lar~e manufacturers. A program doesn't have to be universal to work, Just like wage settlements don't have to be universal to be the ones that are followed by the nonwage sector of the economy. So if other things fall by the wayside, TIP becomes the only thing we haven't tried over the years, it becomes much more attractive. The CnAIRl\IAN. It seems like the only game in town. Leonard Silk in an article in the New York Times-he's a very able and br:ight commentator-he indicated that we ought to try it; that's the only thing left. ,ve are working very hard on this committee. We have been working with the various economists on it and we expect to have something we can offer as an amendment on the floor. e are not going to press it this year, but we think it ought to be debated and discussed and that it has possibility. Mrs. TEETERS. As I say, it has enormous administrative problems. The CHAIRMAN. Isn't there any way you can simplify it? Why ;;hould it be so hard to have a tax law that simply provides a reward for holding your price level below what it was last year, that you can reduce your taxes 1 Mrs. TEETERS. You're going to have problems deciding what the price is and proving that you held it below last year's level and which prices yon held below. It seems to me that TIP has all the inherent problems that you run into with wage and price controls. There is a substantial burden of proof which apparently would fall on the IRS. The one adrnntage of TIP over wage and price controls, although it has all the administrative problems of wage and price controls, is that it doesn't distort the wage and price mechanism of the economy. I have another problem with TIP. I'm reluctant to use the tax system for that type of economic policy. ·we\·e got so much loaded into the tax system now that this is just another distortion of the basic code. However, if it's a way to get at the inflationary problem, I certainly would he willing to try it. The CHAIRMAN. I share all that reluctance with you very much. We do have much too complicated a tax code. The other point, of course, is Government spending, the argument that we have enormously increased Government spending- over the l:ist few years. Even with a percentage of a growing GNP in an inflated economy it's gone from 18 percent to 20 percent-that is Federal !"pending as a percentage of GNP, and of course local and State spending-prodded to some extent by Federal policies has increased. ,v Digitized by Google 13 There's a taxpayer revolt developing in the country and there's a feeling on the part of many, many people that this is a big element in inflation, particularly spendin~ in the defense area and other areas that are sterile and don't provide any economic good for the amount of expenditure that is made. How do you feel with that as an element? Mrs. TEETERS. Well, I think there are a number of things going on in the Government spending area. Part of the rise in sepnding in the past couple years has been in response to the 1974-75 recessionCETA, public works, countercyclical revenue sharing-there's a whole group of programs that were developed as a fight against the recession. Many of these programs were triggered on the employment rate. Unemployment compensation is responsive to the rate of unemploy• ment. Part of the rise in the last few years has been purely antirecession and should disappear as the unemployment rate drops. The share of GNP going to the Federal Government has been relatively stable for 20 years. The big increase has been at the State and local level; it has £?One from 7 percent GNP to about 15 percent, which was primarily for educational expenses associated with the baby boom. The pressure for educations;} expenses at the local levels is disappearing. There are empty schoolhouses now. The CHAIRMAN. Maybe it should. We just passed an elementary and secondary education bill which has colossal increases in expenditure at the Federal level. We are diminishing it at the local level but we are bpending more per capita based on any terms, and the momentum ~eems to be there and it's certainly not ~etting results. We had that documentary on CBS the other night, "The Education Slagheap," showing that here we are spendin~ this enormous amount on education at every level and education is getting worse. The class size is faJling every year and the functional illiteracy is increasing. It's an appalling situation. But you feel that we can diminish the percentage of our GNP going into education because of demographic features 1 Mrs. TEETERS. I think the demographic features have been very important both in the quality of education and the amount we have been spending for it. As the baby boom generation grows up-and they are-I think you are going to find that there are literally fewer children in the educational system over the next 10 to 15 years. Defense, incidentally, has been a relatively smaller share of GNP for the past 10 years, with the exception of the Vietnam war. So that's not the source of the growth in the Federal expenditures; it's coming mainly in social -programs and the exapnsion of social security, medicare, and medicaid. The CHAIRMAN. Senator Sparkman. Senator SPARKMAN. Mr. Chairman, I'm going to have to be on the floor to handle a matter at 11 o'clock so I'm goinl? to have to leave, but before ,roing I'd like to ask just a couple of questions if I may. The CHAIRMAN. Fine. Senator SPARKMAN. Am I correct in my feeling that the Federal Reserve must maintain a certain level of flexibility 1 Mrs. TEETERS. The Federal Reserve, in the conduct of monetary policy, is the most flexible economic instrument that we have because it meets frequently, it can vote, and can change interest rates or targets for money growth. Yes; it's very flexible. U•579 0 • 78 • 3 Digitized by Google 14 Senator SPARKMAN. Is it not so greatly concerned with such matters, for instance, at the present time as the problem of unemployment as against inflation ? Mrs. TEETER$. I would assume that at the present time the inflation problem seems to be more acute than the unemployment problem. although if the Federal Reserve were not concerned about the unemployment I would be most surprised. I personally am concerned with unemployment and employment as well as interest rates and inflation. Senator SPARKMAN. Mr. Chairman, as I say, I must handle a matter on the floor at 11 o'clock so I'm going to have to leave, but I would like to give you my proxy to vote in favor of recommending Mrs. Teeters for confirmation. · The CHAIIOIAN, Well, we will poll the committee today. I'm sure it will be unanimous. There are no members opposed and I agree with Senator Sarbanes that this is a superb appointment. I apologize for taking this much time but we rarely have such an opportunity. The Chairman of the Federal Reserve Board comes up before the committee quite often, but the members don't, and of course you have a vote and you're a very important member of the Federal Reserve. I will have to leave in about 5 minutes because I have to be on the floor at 11 o'clock! too. Let me just ask you this question. I might have time for one more. For a long time the economic strategy of the country seems to have been working toward tighter monetary policy and.looser fiscal policy. That is, we seemed to be deepening our deficit and spending more, and we seem to be following a policy of fighting inflation with monetary policy and therefore higher interest rates. I have felt for a long time that's exactly the revei:se policy-it ought to be a tight fiscal policy and an easy monetary pohcy, that the economy would work best. on that basis-low interest rates and relatively low Federal spending and balanced budgets and so forth. How do you feel about that¥ · Mrs. TEETERS. Well, the most recent deficits from 1974 on have been heavily created. by the economy itself. They have reduced the revenues because of low mcome growth. They have increased the 11nemployment corqpensation and other programs in order to compensate for the recession. . , . I think that the concept I would opt for, which I'm sure is familiar to you, would be to have a positive full employment surplus and let the action in the economy determine when the actual deficit is relative to a slightly positive full employment surplus. . The CHAmMAN. The Federal Reserve releases the policy record of actions taken by the Open Market Committee with about a 30-<!ay lag. Many people believe that the decisions made at the Open Market Committee meeti~ should be .made public within ·a few days. after they are made. Important decisions made by the Congress are debated in public and released immediately. I ran see no reason.why the release of the Open Market Committee policy record should be delayed. · Would you have any problem with havin,r the Open Market Com-· mittee record of policy action released within a few days after eM:lh meetiD1?¥ . Mrs. TE.En:as. I understand that there are·tecbnical problems w.ith preparin1r the record of policy actions. Given the problems of pre- Digitized by Google 15 paring that record and ·having it ·renewecf by each membel" -on the Federal Open Market Committiee, it takes a certain amount of time. I think that the p ~ of technically preparing it· would have· to be taken into C011S1deration in setting a tune liinit ffir the releaee of the Federal Open Market Committee papers. . .· · ·· · ·• The CHAIRlliN. So it'sstrictlytechnicaU .You don't see any reason, like the effect it might have on speculation·or the effe<t. it might have · ·, , on confidence t · Mrs. 1'EETEBs. I don't. know, Senator Pronnire. ·I ha.ve seen 1ihe markets respond in an evel"-shortening period of tirne •from the time of the.Federal Open Ma~ Committee heatings to ·the release of the record of policy actions. I ~an con<Jeive of a problem •of ihforrne.tion 1 • ,: ' • leaking out m the sense tMt,.;..;- : The CHAIRM'.AN. Why shouldn't it-just be covered oompJie~ylThe newspaper people tell me that covering the Fed is the most frustrating secretive acti<m they have. It would -lie a gteat thing for the ·country to understand monetary policy and one ~ason ·we don't ii so mU<'h of it is conducted privately, secretly, and then the release oomes out aft.er the fact and it's so long after the fact it's like a month-old newspaper. Nobody cares. · · · · .. · Mrs. TEETERS. Well, as I say, I think there are 1~me technical pro})lems: We have to have 12 people agree and acknowledge what they · · .·: · ' · ·· • have said. It's like making a transcript. The CllAmMAN. We didn't use to·pennit &nybody in our ~xecutive session of the House and Senate committees. Now we do and' we find it doesn't make ariy difference: We all thought that woo.Id be' a. terrible .. . , · thing. . · · : ' . · . ,. Mrs. 'ThETER.s. I approve of'the sunshine laws. But l' can see that if a few people ~ special information, with the markets as sensitive ae they are ancf with as much money flowing through them, there could be problems. However, it seems to me that if everybody has all the information and it is correctly edited to reflect the views and what actually occurred, then the technical period of time for developing the printed material would be the limiting factor. The CHAIRHAN. Well, I hope you will work on that, and I hope you can justify what you mean by technical. That does seem to me-I want to be fair to you and I know you're being completely honest, but technically just seems to be sayi11g you don't have a good reason. Mrs. 'l'EETERs. As far as I'm concerned, I meant it literally that way. There are production problems of getting 12 people to look at it. The CHAIRMAN. Why do they have to look at 1H We correct ours in the Congressional Record but the press is there watching. They report it at the same time we say it. Mrs. TEETms. Some of my reservation comes from the enormous preBB coverage and commentary on anything the Board does. There's a great deal of pressure to make sure that what is being released is absolutely accurate. I have edited transcripts. There are some very funny things that can come from the spoken words. Spoken words don't read like written words. The CHAIRHAN. We have the chairman of the Federal Reserve Board who's &n extraordinarily able and articulate man, and his predecessors a.re the same, who come up here and off the cuff they talk about anytqing anywhere. You may have noticed the editorials in the Post the Digitized by Google 16 other day where they called him the talkative Mr. Miller. He's free to talk any time, anywhere about anythin_g. But when the FED Board has a meetmg, somehow they have·to study what they said and change it and throw it out, delete it, add to it, and then we only see the edited record 30 days later. Well, thank you very much. I have a number of other questions I'd like to ask for the record. [Seep. 29.] Mrs. TEETmts. Certainly. The CHAnuu.N. And } apologize for having to leave. As I said before and as Senator Sarbanes has said, you're a splendid appointment. It's a great credit to President Carter that he made it. Senator SARBANES. Mr. Chairman, may I just make this observation 9 I think we have had an excellent discussion of economic policy this morning. I think that's testimony to the quality of .the Chairman's guestions and the quality of the nominee's answers and I think it's oeen demonstrated clearly that Nancy Teet.ers is going to be a very strong and positive force on the Federal Reserve Board. Perhaps the committee ought to consider urging Chairman Miller to bring along some of his Board members when he comes before the committee from time to time. The CHAnu.uN. I think that's an excellent suggestion. We don't get them up here enough. There's a great deal of talent on that Board. Mr. Coldwell and Mr. Jackson we have on very special things and occasionally Mr. Partee. Maybe we could get the other members. Mrs. TE!:nms. I'd°be delighted to come. The CHAmHAN. Very good. The committee will stand adjourned. rWhereupon, at 11 a.m., the hearing was adjourned.] [Additional material ordered inserted in the record follows:] Digitized by Google 17 UNITED STATES SENATE COMMITTEE ON BANKING, HOUSING . AND URBAN AFFAIRS ROOM 5300 DIRKSEN BUILDING WASHINGTON, 0.C. 20510 TELEPHONE 202-224-7391 STATEMENT FOR COMPLETION BY PRESIDENTIAL NOMINEES Procedures formally adopled by the U.S. Senate Committee on Banking, Housing and Urban Affairs January 27, 1976, establish a uniform questionnaire for all Presidential nominees whose confirmation hearings come before this Committee. In addition, the procedures establish that: (I) A confirmation bearing shall normally be held at least five days after receipt of the completed questionnaire by the Committee unless waived by a majority ,·ote of the Committee. (2) The Committee shall ,·ote on the confirmation not less than 24 hours after the Committee bas received transcripts or the hearing unless "·ah·ed by unanimous consent. (3) All nominees routinely shall testify under oath at their confirmation hearings. This questionnaire sl1all he made a part of the public record except for financial information, "·hich shall ~e kept confidential. Nominees are requested lo answer all questions, and to add additional pages where necessary. Digitized by Google 18 STATEMENT FOR COMPLETION BY PRESIDENTIAL NOMINEES Namr. _ _Te;eters .... =n_ _ __ Putition to which -,iinaled:~Jbe_federAL.Ruerve....Boa.nL_ .;?, ~!,--,!?..J:O Dateofbirtll: Place of birth: Dale of nomination: August 28, 1978 Marlon. Indiana.,__ _ _ _ _ __ Marital status: ___&n-JecLiZ6..)TS...} Full name of spous,,:..JloberLO--leetel:$. _ _ __ N-•ndaan of children: Ann Teeters _ _ _ _ 18~y_r_s._ _ __ James Schendel Teeters 17....;;.y_rs_._ _ _ _ _ __ ""JOh"""nL..D,. ru1...1<..e_Iuee~te..,r...,5.____ 14......y._e5..________ Education: Institution Dates attended ------------ Degrees Martlnr,il'idia-na--Horace Mann Elemer:itary _ 1936-1942 ---,iia rnnr,-rnd i Vi Martin Boots Jr . High 1942-1945 flla rfffir,1lfd I .fnaMari on High School 1945-1948 Oberlin, Ohl Ober-lin College 1948-1952 Ann Ar-bor. H f c l i l ~ Univer-sity of Michigan 1952-1957 • - received --- Dates of _d!_srees_ Oipl0111a 1948 AS 1952 HA 1954 • Academic year 1955-56 .,as spent In Gennan~---Honors and aw:>rds: list below all scholarships. fella.-:shi~s. honorary dcizrees. rTlilitary me::!als. I"::-~~ ~~~.-:: A,: ie-ty memberships• .:and any other special recognitions tor outstandint service;; or actucvt!m~nt. See Schedu Je A Digitized by Google 19 Memberships: Ust betow all memberships and offices held In prvlflllonal, fratfflllll, bull...._ ICholar1y, civic, charitable and other orpnizations. _ _ _ _o_,.-=-•niz:,tlon_ _ __ Dotn American Economic Association ••• t:nl"-tlst· Ave; -s;-;· Nashvflle, Tenn-:----- - -.American Finance Association Director lt:"Y:11ntv:-;-i.radilate ·schoor. rr.r.c:-· National Economists Clu~ Director, VP, Presizooo- N·s-CNW, D.C-. -ent,- Cii.iiniian (;le_velaod. .Park_Clu.b__ ______ _ __ _ _ __ _ _ _ 3433 33rd Pl. NW, 0. C. Jns.tUute . for_ the. ..Study .nf. .Educa.tl on .eo 11 CY.,-Howard University, 0. C. Member of National ~h.OCY ..ioll:il...__ 1974 - Present - - - - - ---- 1971 - 1974 1968 - PrescnJ ----- - -1959.,.J>ruent -Wl~hesent Employment record: Ust below all positions held since college, including the title or description of job, name of employment, location of work, and dates of inclusive employment. 1951-53 Oberlin College. Obrll.J1,..Jllij"'-o_ _ _,Lva..,ruious fobs 1954-55 Uni vers l..ty.LMI ~hi !1411 ,._ .Ecu.0D011J11111Juf.i;C.>.SJ0111e:i;pu;t_Jiue,oai,;cnblIJD:11,g1-Lf.ee.1.1Juow ...._ __ lliinlrrbor, H1clllgan 1955-56 ugJ:m~1$~e~~§~n<!_(Qy~IleAi.J, _ ___.I~o~st~ruuuc~t~or..._____ 1956-57 Unl ve_rs i J:yLM1 ch 1.9a I!, ~2.112!!!iil.J!"'e.,p.1,.t..._..1I.s:tacllC1oJbIJ1UJDlll9-f<JPOJ)u)c..ow..__ _ nn A"rbor, Micn1gan 1962-63 c~~~~~~~~_._s_____.r..,,,.oo'-"orollll.L1s..,t._____ Federal Reser e Board, Economist Wasli1ngton, . ··c 1966-70 OffJ~.Qf f-191....1,___B_®get. Fl seal Ecooarnist --Washington, o:-i:-: 1970-73 Bro9kings l.nstitution~ SeniarJ..e.l.lo1t. _ __ Washington,- ·o·.- C. . l~3-75* Li t,irar_y J>CConsres s ,_ C.o ngressiona.L __ jg_!li _Q r..5~£.igj is t ___ _ Researc11 Service, i·Jashington, 0. C. 1975*- Present __ _ __ Ho·us-e of Representatives, Conmittee Assistant Oirector-:1957-66 _ _ _.;:O.:.:.n-'t.~ 0 Budg~t_._Ha?h.!Eg_tQ_'h.__!} ;__C_., _ * On loan to HBC by Library for one year 2 Digitized by Google .-..: Chief_E~O.!J.O!l!ist ___ _ 20 Government !'J'Pflrience: List any experience in or direct association with Federal, State, or local governments, in• eluding any advisory, consultative, honorary or other part-time service or positions. ------ -- -----------• Refer_ bac:k_ t(Lemplo,LmeOk~ecord _______________ Part time consultant to the 1970_Advisory Council on _ _s_o_ci_al Security_.___________________ Published writings: List the titles. publishers and dates of books, articles. reports or other published materials you have written. See Schedule B Political affiliations and activities: list a:1 mi?mberships and offices held in or financi::tl contributions and services rendt-re~ to all political parties or election committees during the last ten years. ll.onati_PDs_: ..t.hf~kui9n.ed. JlMCY .Jt_Jeeters: ..McGovern. October 27 .• _121: --Sl0 .00; Jee Fisher, August ,4, 1974 -- 525.00; checks signed R. D. Teeters: People for Muskie, May 20, 1972 -- _$100.00; Mondale Volunteer Conmittee, September 1, 1972 --$25.00; Sarbanes for Senate, December 20, 1975 -- sso.oo. See Schedule C 3 Digitized by Google 21 Quellficatlons: State fully your qualifications to ser,e In the position to which you have been named. (-ChlllNt) See Schedule D Future employment l. Indicate whether you will sever all connections with your present employer, business relationships: firm, association or organization if you are confirmed by the Senate. -1=---------------2. As far as can be foreseen, state whether you have any plans after completing govern, ment service to resume employment, affiliation or practice with your previous em• ployer, business firm, association or organization. - - - - - - --~Q._p,:e~e!lt . plans_or_cQllll!i tm.ents. _____ 3 .. Has anybody made you a commitment to a job after you leave government? No 4. Do you expect to serve the full term for which you have been appointed? Yes, I expect to serve u~til my tenn. has expired. Potential conflicts of interest: l. Describe any financial arrangements or deferred compensation agreements or other continuinz dealings with business associates, clients or customers who will be af• . fected by policies which you will influence in the position to which you have been nominated. -------'S-'e-"e_an.~w_!r to que~_~ion =-2_,b,.,e,..,_1-"'ow,,___ _ _ _ _ _ _ __ ------------------------------2. List any investments, obligations, liabilities, or other relationships which migh: ir.volve potential conflicts of interest with the pqsition to which you have been nominated. See Schedule E Nancy Teeters, and her husband, Robert Teeters will take al) nece.s~ary actions to eliminate conflicts arising from tl)t..!nlll-fllruls. enumerated in Schedule E 4 r Digitized by G cx,gIe 22 3. Describe any business relationship, daalln1 or financial transaction (other than tax• paylnl) which you have had durin1 the last 10 years with the federal Government, whether for yourself, on behalf of a client, or acting as an agent, that might In any _way constitute or result In a possible conflict of lnterast with the position to which you have been nominated. See ques tWLUie1.mt..1.ll!Lemp.l.amen.t...1re:..a.c..oc..,d._.n..o,'-------- 4. Ust any lobbying activity during the past 10 years in which you have enpged for the purpose of directly or Indirectly Influencing the passage, defeat or modification of any legislation at the national level of government or affecting the administration and, execution of national law or public policy. As assistant staff director. and .. chjefecoll0lllllLQLthe....CDl1111i.t.tee... on · the Budget for the House of Rep.ce.s~ntatjyes. I have been responsible for he l pi!!.!L...t~ute\'elOLthe...1wo._conrncceot cesolutioos on the budget required bl(....]aw~Lhave provided staff s11pp0cLto...1lu! Mem!l.l!.r:Ll.Qn!=erning __Jmwosed~g.islation-1.h.a.½ou.lci affect the g.cessJiu1<1Lbutlge.Lpr:oc:ess. ..c.011:-. ·- - --- ·· - - - - - -- -··-·· ·- - · - 5. Explain how you will resolve any potential conflict of interest that may be disclosed by your reapon- to the above items. I do not antjcjpate that my_Jw;kg.rnund wi) I 1nter£ec witb th .._ As indicated, I sbal 1 resign frm my pecfQmoce of DlY. duties work with the House Budget Conmittee. I Digilized by Google 23 Schedule A August 17, 1978 Nancy Hays Teeters Honors and Awards Year 1948 National Honorary Society (High School) 1948 Kiwanis Award (top 10 graduating seniors) 1948 Outstanding Senior Girl (High School) 1952 Comfort Starr Award (economics), Oberlin College 1952-53. Graduate Scholarship (economics), University of Michigan 1953-54 Graduate Scholarship (economics), University of Michigan 1954-55 Teaching Fellow (economics) , ·University of Michigan 1956-57 Teaching Fellow (economics), Univj!rsity of Michigan 1976 Outstanding Service Award, National Economists Club, Washington, O. C. Digitized by Google 24 Nancy Hays Teeters Schedule B August 17, 1978 Publications: "Federal, State, and Local Budgets," Methods and Technique& of Business Forecasting, William F. Butler, Robert A. kavesh, and Robert B. Platt, editors, Prentice Hall, Inc. Setting National Priorities: the 1974 Budget, with Edward R. Fried, Alice M. Rivlin, and Charles L. Sdlultze, Brookings Institution, Washington, 0. C. (1973) Setting National Priorities: the 1973 Budget, with Charles L. Schultze, Edward R. Fried, and Alice H. Rivlin, Brookings Institution, Washington, 0. C. (1972) "The 1973 Federal Budget," Brookings Papers on Economic Activity, Vol . I, Brookings Institution, Washington, 0. C. (1972) Setting National Priorities: the 1972 Budget, with Charles L. Schultze, Edward R. Fried, and Alice H. Rivlin, Brookings lnstiution, Washington, O. C. (1971) "Budgetary Outlook at Hid-Year," in Brookings Papers on Economic Activity, Brookings Institution, Washington, 0. C. (1970) "Payroll Tax for Social Security," in Broad Based Taxes: New Options and Sources, Richard A. Musgrave, editor, Johns Hopkins University Press, Baltimore, Maryland (1973) "Outlook for Federal Fiscal Policy," Brookings Papers on Economic Activity, Vol. 2 (1972) . Brookings Institution, Washington, O. C. "Built-in Flexibility of Federa 1 Expenditures," Brook i n{s Pa)ers on Economic Activity, Brookings Institution, Washington, D. C. 1971 "Report of the Panel of Actuaries and Economists to the Subcoi:n:1 i ttee on Gost Estimates and Financial Policy of the Advisory Council on Social _S ecurity." with Otto Eckstein, Arnol~ Ha,·t,er~("", 1-'urray Lati i:ier , ar.t :-:,,•:1P.ll ;.; ;11;.--., .. . in ReP.orts . of t~e 1J71 ·- ~iv i sory Cqur-c i 1 on S0c i a 1 S~cur i-: ·:, :-:o~se ~ocu!.. i_, ~ . ~92-SO, 92nd Congress, 1,, Session (1971 · "The Full Employment Surplus Revisited," .iith Arthur M. Okun , Grookinns Pa ~r.r~ c•1 Economic Activity, Brookings Institution, :-:cs·h~ ogtoc, D. C.;1970) Digitized by Google 25 Schedule C August 17, 1978 Nancy- Hays Teeters Services: Technical advisor for Democratic Platfonn Conmlttee June 1976 Member Economic Advisory Conmlttee for President Carter July - November 1976 Technical advisor to McGovern 1972 Carter Transition Staff November 1976 January 1977 r Digitized by Google 26 Schedule D August 17, 1978 Nancy. Hays Teeters Qualifications By training, I am an economist. I concentrated in economics both as an undergraduate at Oberlin College and as a graduate student at the University of Michigan with special emphasis on fiscal and monetary policy. My entire professional career of twenty-one years to date has been as an economist. From 1957 to 1966, I served as a staff economist in the Government Finance Section of the Oivision of Research and Statistics of the Federal Reserve Board. My responsibilities included such things as tracking the ownership of the Federal debt, estimating and interpreting Federal fiscal policy, supervising the development of certain computer programs, and special studies, such as the one on the fiscal impact of the social security system. In 1962, I was loaned to the Council of Economic Advisers, and helped to develop the tax reduction proposal which eventually was enacted into law in 1964. From January of 1966 to January of 1970, I was an economist in the Fis ca 1 Analysis Division of the Bureau of the Budget (now the Office of Management and Budget). During most of that time, I was the sole staff representative of the Bureau to the Troika -- the three agency, three level group that developed the official economic forecasts of the Government. I was also the staff liaison person with the Council of Economic Advisers and the revenue estimators at the Treasury . I was responsible for any economic discussion in the budget documents, the revenue section, and one of the special analyses . In addition to the macrc- . economic work, I participated in development of social security policy and t11c unified budget. From February 1970 to September 1973, I was on the staff of the Brookir;'.,s Institution. During that period, I was promoted from a research associate t0 Since Brookings is a research institution. my work involv e' extensive research and ><rit i ng on a variety of to pics in ·economics (see att ,, ···,: list or publications, Schedule G). I ,,as also a men•bcr of the Brookings r ,,,· . a senior fellow. e n E.:.. :; ~11:dc Activity . Frc,;.: Se ptc,:;ber 1S·7O t0 t·'.J:; 197 1. I se r ved .1:; a tee~;, : con,ul tant to the Suhc o,rn·,i ttee to EvaluHc th~ :..ct<1arial S<1 undne ss of Soci., ; Sccu.-i ty System of the 1970 Advisory Counci 1 on Social Security. From September 1973 to December 1975. I was a senior specialist in the Con:,1-....-:);; io11,~ 1 r~e:iearch Service cf the Li b1·ary of Couyt·ess. Howeve r , from NovemhPr 197.4 until December 1975, I was on loan to the Conrnittee on the Gw'n" t of the United States House ·of Representatives. Including the period on loan. I have been the Chief Economist and Assistant Director of the Budget C(l11111i ttel! from 1974 to the present. I have been involed with the fonnulation of Federal fiscal po l icy for n:uch of my career. Correct evaluation of the impact of fiscal policy requires a Digitized by Google 27 Schedule 0 August 17, 1978 Page 2 Nancy Hays Teeters detailed knowledge of the workings of monetary policy. I have followed monetary policy closely, even during the years since I left the Federal Reserve Soard . I have a thorough understanding of open market operations, and also have extensive experience in deve 1oping economic forecasts. I have served three-year tenns as a Director of the American Finance Association and on the Con-mittee on the Status of liomen of the American Economic Association . I have also been Vice President, President, Chairman of the Board, and member of the Board (ex officio) of the National Economists Club . I am currently a member of the National Advisory Soard of the Institute for the Study of Educational Policy, Howard University. If confinned, I shall do my best to serve the Nation wel' as a member of of the Board of Governors of the Federal Reserve System. Digitized by Google 28 ......... ..--&..~ - .---. __ _. __....~ N1NDY,l'I P'ftl -- -... . --------------..... -......... -...- __ . .....,. ..... ....... --. ......... -...-.... C:- _...,1..1.f fftt,,---T.--. ... ... _,._ .,__,.1,., ,.,..,- .---_. --, _. . .._ . _ _ _ .. -.r , GM.a', ..... ---. _,.,.., a.6. J,olde Ii lbprdmtatibd .,, CoMMIT ID ON Tia lluDolff _..._&T, ■•41apa, ----- JI.C. 205\5 September 12, 1978 .-. _.,,- . Honorab 1e W1 111 am Proxmire Chainnan, C00111ittee on Banking, Housing and Urban Affairs United States Senate 5300 Dirksen Office Building Washington, D. C. 20510 Dear Chainnan Proxmire: Enclosed are the answers to the question s you d in your letter of September 11th. If there are any furtherrequeste question s you wish answered, it will be 111)' pleasure to do so. Thank you for your conside ration of this matter. S1ncere 1y yours , ~ · ~d NA-:; _ TEETERS Assista nt Directo r NHT:w Enclosures D1g1t12ed by Google 29 ANSWER TO CHAIRMAN PROXMIRE'S QUESTIONS 1. I have long been in favor of having the Federal Reserve Board provide economic projections to the Congress so that we can more easily understand the intended effects of monetary policy. H-1 by itself is almost meaningless . They have refused to provide such projections to this or any other conmittee of the Congress. QUESTION: Given your experience with economic forecasting and the need for infonnation about monetary policy, especially in preparing budget forecasts, would you be wi 111 ng to have Federa 1 Reserve forecasts provided to the Congress in conjunction with its required reports on 1110netary policy? ANSWER: It is my understanding that the Federal Open Market Conmittee (FOHC) does not make an official concensus forecast of the economy . However, individual members undoubtedly have opinions on this subject. Since Chainnan Hiller's appointment to the Board, he has been giving his forecast to the various conmittees in open testimony. I suspect, although I don't know for sure that Chainnan Hiller's forecasts reflect the concensus of the FOHC as he perceives it. I think it would be wise to wait and see whether the infonnation now being provided by the Chairman meets the needs of Congress for additional infonnation. 2. The declining value of the dollar has been a problem facing the Administration and the Federal Reserve for a long time. The Federal Reserve has taken steps to support the dollar from time to time. Raising the discount rate and borrowing from foreign central banks and then purchasing dollars has a temporary stabilizing effects. But they don't last long. Such policies do not get at the crux of the problem. The dollar's weakness is due to fundamental factors -- inflation, large ofl imports, and faster economic growth in this country than that of our major trading partners. Last January the Fed raised the discount to support the dollar. Domestic interest rates rose and stayed up, but the dollar did not recover in value for very long. Several weeks ago the discount rate was raised again to shore-up the dollar. There is no guarantee that this will work for very long. Yet interest rates here have gone up about~ percent. QUESTION: Given the economic outlook for the economy, current interest rate levels may cause problems in the future, without really doing much to aid the value of the dollar in any way. Would you as a fflellber of the Board vote to use domestic monetary policy to provide quick but temporary support for the dollar? ANSWER: The use of domestic monetary policy to suport the international value of the dollar can, as you say, have only a temporary impact on the problems of the dollar. Whether I would vote to provide such support for the dollar would depend heavily on the circumstances at the time. 3. Governor Robertson, the distinguished fonner Vice Chairman of the Federal Reserve has stated that monetary policy control and bank regulation should not be combined in a single agency. His view is that bank regulators should not be tempted, for example, to color their assessment of the quality of a bank's assets by judgments of whether more loans should be made to support an expansionist monetary policy. Recently the President of First Pennsylvania Bank testified that he personally experienced a situation where the monetary policy staff of the Fed was encouraging his bank to make more loans while the Feds bank examiners were cautioning him to slow down. ,,,Digitized byGo~ le 30 QUESTION: Is there a conflftt of interest between the execution of monetary policy and bank regulation? ANSWER: I know very little about the regulatory functions of the Board. I simply don't know the answer to the question. However, I will, of course, look into this problem if confirmed. 4. Senators Ribicoff, Javits and I have sponsored legislation which is under joint consideration by this C0111111ttee and the Governmental Affairs C011111ittee which would consolidate the bank regulatory functions of the three separate agencies outside the Federal Reserve into a single bank regulatory agency. The extsting bank regulatory structure has been severly criticized as encouraging competition in laxity among the regulators. QUESTION: Would you favor streamlining the bank regulatory structure along the lines we propose? ANSWER: As I have safd, I am not sufficiently knowledgable in this area to have an informed opinion of this subject. 5. The Federal Reserve has significant regulatory responsibilities such as the Acninistration of the bank holding company. QUESTION: regulation? ANSWER: What background do you bring to the Board in supervision and None, except for general exposure during my years at the Board. 6. QUESTION: Do you know the amount of time the Board spends on bank regulatory matters versus monetary policy? ANSWER: No 7. QUESTION: How do you expect to divide your time between monetary policy and bank regulation? ANSWER: I don't know, but I assume it would vary depending on economic conditions and conitions within the banking industry. 8. Both this Conmittee and the House Banking C011111ittee are considering bills to improve the conduct of monetary policy and to stem the erosion of Federal Reserve membership by providing for more uniform and universal reserve requirements . Universal reserve requirements and access to the Federal Reserve's discount window and to Federal Reserve services for all banks would be major improvements and would make the Federal Reserve more of a central bank. QUESTION: What are your views on this legislation? ANSWER: I have just learned of this proposed legislation and therefore, I have not studied it carefully. However, the proposal does seem to correct the problem of declining membership in the Federal Reserve System. In July, 1976, the National Urban League and ten other civil rights groups filed 9. suit against the Federal Reserve and the Comptroller of the Currency, the F .O.1.C ., PD -1. 5-3 Digitized by Google 31 and the Federal Home Loan Bank Board charging a nearly total failure by these agencies to enforce the Nation's fair housing laws. Since then, the Comptroller, F.D. I.C . , and the Bank Board have each settled the suit brought against them by agreeing to strengthen their enforecement substantially and to devise new methods of detecting discrimination by lenders. Unfortunately, only the Fed has steadfastly refused to settle the suit against it. In fact, it succeeded in having the suit dismissed, but only on procedural grounds, not on its merits. A recent study of the Board's actions, however , has shown that the plaintiffs' charges were more than justified. QUESTION: As a member of the Board, what would your position have been with regard to this litigation, and what would your attitude be toward the Board's fair housing activities generally? ANSWER: I do not know the circllftstances surrounding this suit, so I don't know what my position would be regarding it. I do feel that the Board should actively promote fair housing activities. 10. In October, 1977, the five Federal bank regulatory agencies issued proposed joint. guidelines which would have required lenders who violate the Truth in Lending Act to refund excess interest charges to consumers . In the ten months which have followed, however, there has been no apparent progress toward finalizing these guidelines. Statistics compiled by the agencies themselves indicate that interest overcharges under the Truth in Lending Act range anywhere from $30 million to $100 million annually. But despite knowledge of these overcharges, no refunds are being ordered and the restitution guidelines are bogged down in bureaucratic quicksand . QUESTION: As a member of the Board, what would your position be on mandatory restitution of interest overcharges discovered by Federal Reserve examiners? ANSWER: Part of the problem of restitution of interest overcharges is apparently the period of time over which restitution should be made . Overcharges that are discovered currently are obviously easier to repay than overcharges that occurred ten years ago. I would favor instituting the repayment of current overcharges and work out, if possible, the ones carried over from the past. 0 Digitized by Goc£e